Research | Sui Pengfei: Prospect Theory in the Field: Revealed Preferences from Mutual Fund Flows

Release time：20 January 2026

Prospect Theory, proposed by Daniel Kahneman and Amos Tversky, is the core theoretical framework of behavioral finance, used to describe individual decision-making behavior under uncertainty. The theory was initially developed based on laboratory experiments and has been widely applied to explain various financial anomalies. However, its applicability in real market environments still lacks sufficient verification.

The study Prospect Theory in the Field: Revealed Preferences from Mutual Fund Flows is a collaborative effort between Professor Sui Pengfei of the School of Management and Economics (SME), The Chinese University of Hong Kong, Shenzhen (CUHK-Shenzhen), Professor Han Bing of the University of Toronto, and Professor Yang Wenhao of the University of North Carolina (UNC). Using actively managed equity funds between 1981 and 2022 as samples, the study, based on the CRSP US mutual fund database, constructs TK values and analyzes their relationship with future fund flows to explore whether Prospect Theory can explain investors’ actual decision-making behavior. This research addresses the lack of field data verification in existing literature. The research paper was accepted and published online by the Journal of Financial Economics, a top-tier international finance journal.